30 December 2011

Economic Slump in BRIC Nations in 2012

The BRIC (Brazil, Russia, India, China) nations will face economic slowdown in the coming years, said Jim O'Neill, who coined the term 'BRIC' about a decade ago, in his book, 'The Growth Map.'

O'Neill highlighted the following in his book - the BRIC nations will continue to be a major part of world economy and markets, however, the glory of the BRIC nations is going to diminish in the coming years. According to an Economic Times article, data given by Emerging Portfolio Fund Research (EPFR) indicated that the Morgan Stanley Capital International (MSCI) BRIC Index had dropped by 24 percent. Also, a show on Bloomberg quoted Michael Shaoul, Chairman of Marketfield Asset Management New York on the BRIC as "In emerging markets, we're waiting for things to get worse before they get better."

It is further speculated that the BRIC indexes may reduce by another 20 percent in 2012, owing to Europe's Debt Crisis. O'Neill said that the Euro zone will witness changes in the next year, though not all negative. He also said that other growing markets, like - South Korea, Indonesia, Mexico and Turkey, will also be a significant part of world economy, along with the BRIC nations.

The article quoted Arjuna Mahendran, Singapore-based Head of Asia Investment Strategy HSBC Pvt. Bank, "The slowdown we're seeing in the BRICs will continue for most of the first half," and "Compared to the U.S., corporate profits haven't been that good as companies face higher wages, higher interest rates and currency volatility, and at best, we'll only start to see the effects of monetary policy loosening in the second half of 2012."

According to International Monetary Fund (IMF), the BRIC nations will witness an average economic growth of 6.1 percent in 2012, which is much lower than the past years. India is witnessing sluggish growth this year because of lessened Foreign Direct Investment (FDI), affected greatly by the falling value of the Indian Rupee. According to Goldman Sachs, $70 billion has been invested in the BRIC nations in the last decade, while Standard & Poor's 500 Index showed that the stocks of the BRIC nations had grown four times, as compared to America.